The previous administration had been widely criticised and discredited, not least in the advice community. The Financial Services Authority (FSA) may have got a few things right, but it would always be associated with the banking crisis, misselling scandals and - for advisers in particular - the retail distribution review (RDR).
Its successor, revealingly, was quick to distance itself from the old regime, with chief executive Martin Wheatley describing the FCA as a “very different animal”. The new regulator has been a busy one, at least. Since last April it has racked up fines totalling £543 million (as shown in the timeline) and issued a succession of bans and warning notices, the latter among the new powers given to the regulator.
It has also launched rules, guidance, reviews and consultations concerning platform charges (most notably a ban on rebates), sales incentives, annuities, crowdfunding, consumer credit, Sipps, wealth managers, insurance add-ons and more.
In other words, fears of regulatory paralysis as the winds of change swept through Canary Wharf have proved unfounded.
But has it been a successful first 12 months? While it will be some time before the FCA can be fairly assessed given the scale of the task in hand, first impressions really do count.
There appears to be a consensus among advisers on what the FCA has done well, with several remarking on its efforts to improve relations with the companies it regulates.
“From our perspective the FCA seems more open and willing to engage with the advisory community than its predecessor,” says Peter Chadborn, director at Plan Money.
“We see this from attendance at conferences and consistency of message. Certainly any dealings we have had with them at firm level have been positive so far.”
That visibility has also been evident to Alan Dick, principal of 42 Wealth Management and vice-president of the Institute of Financial Planning. He describes the FCA representatives at a recent compliance workshop as “very helpful and open”.
“If the rest of the FCA is behaving in the same way and sending out the same message then things are definitely improving,” he adds.
Damage limitation
A common complaint about the FSA was its tendency to create a compliance burden for advisers. But the new regulator has so far resisted adding to the adviser compliance load, says Mr Dick.
“I think small firms are so far down the FCA’s agenda that it is unlikely this will change. It appears (rightly) to be focusing on the places where the most damage to consumers can happen. IFAs are well down that list.”
Graeme Mitchell, managing director of Lowland Financial Planning, agrees.
“I get the impression that it is trying to be more helpful - but that’s a difficult tightrope to walk when ultimately your role is to police the industry,” he says.
All of this reflects a growing willingness to adopt a light-touch approach to firms that can demonstrate their professionalism, believes Paul Lothian, director at Verus Financial Planning.
“I think the FCA is beginning to accept and acknowledge that a ‘risk-based’ approach is the right one,” says Mr Lothian.
In that sense the RDR has helped, he adds: “There are fewer cowboys and sharp practices in our sector as a result of the commission ban and higher mandatory qualifications for advisers.”
The compliance task has been made easier by the increased use of thematic reviews, according to Lisa Hamer, compliance director at Murray Asset Management, who says the findings are valuable in reviewing company practices against regulatory expectations.
“Its communications and seminars to help firms deal with the changes brought in by CRD IV have been really helpful, especially given this is EU legislation and not FCA-driven,” she adds.
Tom Munro, owner of Tom Munro Financial Solutions, has also seen an upturn in the standard of communication with firms.
“Being a small, directly authorised firm, we receive regular communications and updates which are significantly more transparent and ‘reader friendly’ than the FSA’s announcements, which often resembled something written by Hans Christian Andersen.”
Mortgage matters
Mortgage lenders report a similar improvement in the way the regulator works with the industry. Sue Anderson, head of member and external relations at the Council of Mortgage Lenders (CML), welcomes evidence of a greater inclination to listen.
“We’re really pleased to see the FCA trying to adopt a culture that tries to work with firms and find collaborative approaches to market challenges - an example being the work with the industry on proactive contact with interest-only mortgage customers,” says Ms Anderson.
However, she acknowledges that the test for this approach will come in the event of any unintended consequences arising from the Mortgage Market Review (MMR), taking effect at the end of April.
Faith in the regulator’s ability and willingness to deal with sector-specific challenges has most obviously been tested in pensions. While its review of the annuity market, which concluded in February that it no longer works effectively for consumers, was largely well received, it was criticised for extending its probe for another year rather than acting more urgently.
Malcolm McLean, senior consultant at Barnett Waddingham, says, “It is hardly credible that it has taken a year to tell us basically what we already knew - that the annuity market is not working well for consumers - but even worse than that it will be another 12 months before the FCA will be able to tell us what, if anything, it proposes to do about it.”
The review’s findings underline the need for changes to be made far more quickly, says Mr McLean, who claims the FCA hasn’t begun to look at the structural issues that need to be tackled.
Some advisers fear the regulator is underestimating the impact of the RDR reforms too, not least on adviser numbers.
Mr Wheatley told the Treasury Select Committee earlier this year that adviser numbers had grown under the RDR, prompting some advisers to suggest that the regulator was being less than transparent.
“We haven’t seen the dramatic drop in numbers in 2013 as bancassurers closed their doors in the run-up to RDR, ‘tipping’ a significant amount of employees into the IFA sector, effectively balancing the figures,” says Mr Munro.
“Many long-time practicing advisers have sadly left our industry and this is detrimental to the FCA’s aim of “access to advice” in order to close the savings gap.”
Missing the mark
Canary Wharf also comes under fire from Alan Steel, chairman of Alan Steel Asset Management, who suggests that the FCA remains more reactive than proactive.
“You could say the FCA is stronger and harder in some ways, with personal fines and persons being struck off or banned, but it’s learned nothing from previous misdemeanours or misselling. It still waits for crises to develop and only acts when it is too late,” he says.
The same applies to the FCA’s appraisal of firms’ financial strength, says Ms Hamer at Murray Asset Management, who wants to see more rigorous monitoring of company finances in order to spot potential FSCS-draining failures.
“It is no good closing the stable door after the horse has bolted,” she says.
The theme of a regulator having to learn the right lessons from the mistakes of its predecessor is a common one. Advisers have evidently been encouraged by a subtle change of tack in regulatory attitude towards firms and a greater willingness to engage. Yet they remain concerned that the FCA is struggling to deal with the fallout from the RDR.
The coming months will reveal more about how it intends to deal with simplified advice, non-advised sales, platform fund promotions and a whole range of other issues on an agenda that also includes the implementation of the MMR and the new consumer credit rules.
The early signs are largely positive, however, albeit with the benefit of being compared with a predecessor seen by many as an unlamented failure.
“For now the FCA needs to prove its worth as a champion of good financial service ensuring that the consumer is treated fairly at all times,” says Mr McLean at Barnett Waddingham. “Let’s hope it succeeds in that basic task where so often the FSA was found lacking.”
